Regrets Perspective Requested

Ltssharon | Apr 28, 2023 | 472 posts since 2020

which would you have greater regrets from:

a) you invest in 5 year term 4.4 percent cd and then shortly after making that investment, rates go up soon to 6 percent, or

b) you wait a year (during that year your rate is 3.75, but your cd matures), and at that point, 5 year rates go down to 3.5 percent.

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racecar | Apr 28, 2023 | 631 posts since 2014

For me the regret would be:
(c) That I didn't stop to look at the world around me enough to put things into perspective.

No one can time everything perfectly. Sure, it'd be great if one could know the exact day to buy a stock and sell it, but it's never going to happen. But if you're better off than you were before, that's a good thing. Last summer I joined a credit union to get a 4% 5yr CD special when rates first hit 4% back then. Rates have since gone up, but I'm still better off having made the plunge at 4% last summer, than the 2-3% rates before that. And even though rates are now higher for their 5yr CD, there was also the silver lining that I was only able to become a member of that credit union because I joined them when rates were 4% last summer (as they stopped accepting out of area applications shortly afterwards). So I just kept my 4% CD with them, but now I can open up a new 5yr IRA CD with them for just under 5% APY too. So whether you get 3.5 vs 3.75...or I get 4% vs 4.96... you're never going to time things perfectly, but as long as you're better off than you were, it's not so bad. But hey, what do I know? :()

sams1985 | Apr 28, 2023 | 781 posts since 2022

I would choose A. At least you’re still getting higher than any rate in scenario B and can always break the CD if rates shoot up to 6%. 4.4 guaranteed for 5 years isn’t bad at all.

greenback | Apr 28, 2023 | 55 posts since 2022

Interesting scenarios -- if I understand it correctly, I will pick option (a) over option (b) with the perspective of investing in the long-term future opportunity rather than regretting for missing on it in the recent past.

(a) If the rate is going up from 4.4% to 6%, it is better to lock the 6% rate for next 5-7 years even after paying a maximum EWP of 6 months (but only from the interest already earned and not from the principal). If the EWP is more than 6 months, then it needs a calculator to determine the actuals from breaking the CD while covering the loss with that 1.6% difference in the rates.

(b) Waiting and timing the market is a stressful process in itself and likely to cause regrets in most cases. Your option (b) is a good example of it. At one time, rates dropped down to 0.50% for a long period to a point that I stopped waiting for it to rise again but still not regretting it today as I already survived thru it.

Few other things that changed my perspective is the time and effort required to chase the rates very often, deal with unreliable approval system to earn the marginal income and end up collecting those 1099s. So, if the amount is substantial enough and it can be made available immediately to lock a better rate for the longer term, then I will go for it as a one-time effort and not look back.

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